Chapter 25

Production and Growth

3. During the past century if the average growth rate of real GDP per person of
Vietnam had been 7%, it implies that it would have doubled, on average, about
every
a. 100 years.
b. 70 years.
c. 10 years.
d. 25 years.
10. Which of the following statements is correct?
a. The level of real GDP is a good gauge of economic prosperity, and the growth of
real GDP is a good gauge of economic progress.
b. The level of real GDP is a good gauge of economic progress, and the growth of
real GDP is a good gauge of economic prosperity.
c. The level of real GDP is a good gauge of economic prosperity, and the level of
real GDP per person is a good gauge of economic progress.
d. The level of real GDP is a good gauge of economic progress, and the level of
real GDP per person is a good gauge of economic prosperity.
6. Over the past 100 years, U.S. real GDP per person has doubled about every 35
years. If, in the next 100 years, it doubles every 25 years, then a century from
now U.S. real GDP per person will be
a. 4 times higher than it is now.
b. 8 times higher than it is now.
c. 12 times higher than it is now.
d. 16 times higher than it is now.
5. A nation's standard of living is best measured by its
a. real GDP.
b. real GDP per person.
c. nominal GDP.
d. nominal GDP per person.
6. If one wants to know how the material well-being of the average person has
changed over time in a
given country, one should look at the
a. level of real GDP.
b. growth rate of nominal GDP.
c. growth rate of real GDP.
d. growth rate of real GDP per person.
7. The level of real GDP person
a. differs widely across countries, but the growth rate of real GDP per person is
similar
across countries.
b. is very similar across countries, but the growth rate of real GDP per person
differs widely
across countries.
c. and the growth rate of real GDP per person are similar across countries.
d. and the growth rate of real GDP per person vary widely across countries.
22. Which of the following does the level of real GDP measure?
a. total real income
b. productivity
c. the standard of living
d. All of the above are correct.
23. Which of the following is correct?
a. Countries with the highest growth rates over the last 100 years are the ones
that had the
highest level of real GDP 100 years ago.
b. Most countries have had little fluctuation around their average growth rates
during the
past 100 years.
c. The ranking of countries by income changes substantially over time.d. Over the
last 100 years, Japan had the highest real GDP growth rate, and now has the
highest real GDP per person.
31. Last year real GDP in the imaginary nation of Oceania was 561.0 billion and
the population was 2.2
million. The year before, real GDP was 500.0 billion and the population was 2.0
million. What was the
growth rate of real GDP per person during the year?
a. 12 percent
b. 10 percent
c. 4 percent
d. 2 percent
37. Which of the following isnot correct?
a. Across countries there are large differences in the average income per person.
These
differences are reflected in large differences in the quality of life.
b. With a growth rate of about 2 percent per year, average income per person
doubles about
every 35 years.
c. The ranking of countries by average income changes very little over time.
d. In some countries real income per person has changed very little over many
years.
1. The one variable that stands out as the most significant explanation of large
variations in living
standards around the world is
a. productivity.
b. population.
c. preferences.
d. prices.
4.Productivity is defined as
a. the amount of difficulty that is involved in producing a given quantity of goods
and
services.
b. the quantity of labor that is required to produce one unit of goods and
services.
c. the quantity of goods and services produced from each unit of labor input.
d. the quantity of goods and services produced over a given amount of time.
6. Perry accumulated a lot of mathematical skills while in high school, college,
and graduate school.
Economists include these skills as part of Perry’s
a. standard of learning.
b. technological knowledge.
c. physical capital.
d. human capital.
7. What term do economists use to describe the relationship between the
quantity of inputs used and
the quantity of output produced?
a. production function
b. input function
c. capital function
d. returns to scale
9. Technological knowledge
a. is the same thing as human capital.
b. can be discovered but it can never be kept secret.
c. is a determinant of productivity.
d. does not play a role in the relationship that economists call theproduction
function .
11. Industrial machinery is an example of
a. a factor of production that in the past was an output from the production
process.
b. physical capital.
c. something that influences productivity.
d. All of the above are correct.
13. Despite its status as one of the richest countries in the world, Japan
a. has a very low level of productivity.
b. has few natural resources.
c. has very little human capital.d. engages in a relatively small amount of
international trade.
15. Which of the following statements is correct?
a. By definition, all natural resources are nonrenewable.
b. Market prices give us reason to believe that natural resources are a limit to
economic
growth.
c. An economy must be blessed with ample quantities of natural resources if it is
to be a
highly productive economy.
d. Differences in natural resources can explain some of the differences in
standards of
living around the world.
21. In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor.
What was their
productivity?
a. 1/8 cabinet per hour
b. 8 hours per cabinet
c. 40 cabinets
d. None of the above is correct.
27. Workland has a population of 10,000, of whom 7,000 work 8 hours a day to
produce a total of
224,000 final goods. Laborland has a population of 5,000, of whom 4,000 work 12
hours a day to
produce a total of 120,000 final goods.
a. Workland has higher productivity and higher real GDP per person than
Laborland.
b. Workland has higher productivity but lower real GDP per person than
Laborland.
c. Workland has lower productivity but higher real GDP per person than
Laborland.
d. Workland has lower productivity and lower real GDP per person than
Laborland.
33. Both Tom and Jerry work 10 hours a day. Tom can produce six baskets of
goods per hour while
Jerry can produce four baskets of the same goods per hour. It follows that Tom's
a. productivity is greater than Jerry's.
b. output is greater than Jerry's.
c. standard of living is higher than Jerry's.
d. All of the above are correct.
41. The key determinant of a the standard of living in a country is
a. the amount of goods and services produced from each hour of a worker's time.
b. the total amount of goods and services produced within the country.
c. the total amount of its physical capital.
d. its growth rate of real GDP.
47. Which of the following wouldnot be considered physical capital?
a. a new factory buildingb. a computer used to help Mercury Delivery Service
keep track of its orders
c. on-the-job training
d. a desk used in an accountant's office
53. Which of the following is human capital?
a. a student loan
b. understanding how to use a company's accounting software
c. training videos for new corporate employees
d. All of the above are correct.
58. Which of the following would be human capital and physical capital,
respectively?
a. for an accounting firm, the accountants’ knowledge of tax laws and computer
software
b. for a grocery store, grocery carts and shelving
c. for a school, chalkboard and desks
d. for a library, the building and the reference librarians’ knowledge of the
Internet
64. Which of the following is an example of a renewable natural resource?
a. the knowledge possessed by scientists
b. carpenters’ labor services
c. lumber
d. All of the above are correct.
70. In a market economy, the real, or inflation-adjusted, price of a resource
measures its
a. contribution to revenue.
b. relative scarcity.
c. productivity.
d. contribution to efficiency.
79. If a good has become more scarce, then we knowfor sure that
a. the demand for it increased.
b. the supply of it decreased.
c. either the demand for it increased or the supply of it decreased.
d. both the supply of it and the demand for it decreased.
87. A management professor discovers a way for corporate management to
operate more efficiently.
He publishes his findings in a journal. His findings are
a. proprietary and common knowledge.b. neither proprietary nor common
knowledge.
c. proprietary, but not common, knowledge.
d. common, but not proprietary, knowledge.
93. Suppose that over the last ten years productivity grew faster in Oceania than
in Freedonia and the
population of both countries was unchanged.
a. It follows that real GDP per person must be higher in Oceania than in
Freedonia.
b. It follows that real GDP per person grew faster in Oceania than in Freedonia.
c. It follows that the standard of living must be higher in Oceania than in
Freedonia.
d. All of the above are correct.
99. Which of the following would be considered physical capital?
a. the available knowledge on how to make semiconductors
b. a taxi-cab driver’s knowledge of the fastest routes to take
c. bulldozers, backhoes and other construction equipment
d. All of the above are correct.
105. In a particular production process, if the quantities of all inputs used are
increased by 60 percent,
then the quantity of output increases by 60 percent as well. This means that
a. the production process cannot be enhanced by technological advances.
b. no mathematical representation of the relevant production function can be
formulated.
c. the relevant production function has the limits-to-growth property.
d. the relevant production function has the constant-returns-to-scale property.
111. An economy’s production function has the constant-returns-to-scale
property. If the economy’s
labor force doubled and all other inputs stayed the same, then real GDP would
a. stay the same.
b. increase by exactly 50 percent.
c. increase by exactly 100 percent.
d. increase, but not necessarily by either 50 percent or 100 percent.
118. Refer to Scenario 25-1. If the production function has the constant-returns-
to-scale property,
then it is possible that the specific form of the production function is
a. Y = 4L + 2K + 3H + N
b. Y = (L +K +H + N)/4
c. Y =2
d. Y = 4ANS: C
1. “When workers already have a large quantity of capital to use in producing
goods and services,
giving them an additional unit of capital increases their productivity only
slightly.” This statement
a. represents the traditional view of the production process.
b. is an assertion that capital is subject to diminishing returns.
c. is made under the assumption that the quantities of human capital, natural
resources,
and technology are being held constant.
d. All of the above are correct.
9. Investment in
a. physical capital, unlike investment in human capital, has an opportunity cost.
b. physical capital, like investment in human capital, has an opportunity cost.
c. human capital is particularly attractive because it involves no externalities.
d. human capital has been shown to be relatively unimportant, relative to
investment in
physical capital, for a country’s long-run economic success.
13. In countries that experience political instability, standards of living tend to be
low because of
a. violations of diminishing returns.
b. excessive levels of caloric intake.
c. lack of respect for property rights.
d. attempts by government officials to thwart the catch-up effect.
18. Accumulating capital
a. requires that society sacrifice consumption goods in the present.
b. allows society to consume more in the present.
c. decreases saving rates.
d. involves no tradeoffs.
23. In the long run, an increase in the saving rate
a. doesn’t change the level of productivity or income.
b. raises the levels of both productivity and income.
c. raises the level of productivity but not the level of income.
d. raises the level of income but not the level of productivity.ANS: B
28. Other things the same, a country that increases its saving rate increases
a. its future productivity and future real GDP.
b. neither its future productivity nor future real GDP.
c. its future productivity, but not its future real GDP.
d. its future real GDP, but not its future productivity.
33. Other things equal, relatively poor countries tend to grow
a. slower than relatively rich countries; this is called the poverty trap.
b. slower than relatively rich countries; this is called the fall-behind effect.
c. faster than relatively rich countries; this is called the catch-up effect.
d. faster than relatively rich countries; this is called the constant-returns-to-scale
effect.
38. Which of the following best describes the response of output as time passes
to an increase in the
saving rate?
a. The growth rate of output does not change.
b. The growth rate of output increases and gets even larger as time passes.
c. The growth rate of output increases and does not change as time passes.
d. The growth rate of output increases, but diminishes to its former level as time
passes.
43. On a production function, as capital per worker increases, output per worker
a. increases. This increase is larger at larger values of capital per worker.
b. increases. This increase is smaller at larger values of capital per worker.
c. decreases. This decrease is larger at larger value of capital per worker.
d. decreases. This decrease is smaller at larger value of capital per worker.
51. If an American-based firm opens and operates a new watch factory in Panama,
then it is engaging
in
a. foreign portfolio investment.
b. foreign financial investment.
c. foreign direct investment.
d. indirect foreign investment.
57. The opening of a new American-owned factory in Egypt would tend to increase
Egypt's GDP more
than it increases Egypt's GNP because
a. some of the income from the factory accrues to people who do not live in
Egypt.b. gross domestic product is income earned within a country by both
residents and
nonresidents, whereas gross national product is the income earned by residents
of a
country while producing both at home and abroad.
c. all of the income from the factory is included in Egypt's GDP.
d. All of the above are correct.
64. Which of the following is generally an opportunity cost of investment in
human capital?
a. future job security
b. forgone present wages
c. increased earning potential
d. All of the above are correct.
74. Inward-oriented policies
a. include imposing tariffs and other trade restrictions.
b. have generally increased productivity and growth in the countries that pursued
them.
c. promote the production of goods and services that the country produces most
efficiently.
d. All of the above are correct.
79. When a country removes trade barriers and imports toys and exports farm
machinery,
a. its growth slows.
b. its productivity decreases.
c. it is essentially transforming farm machinery into toys.
d. its economic well-being decreases while that of the country that sells toys
increases.
85. Inventors often obtain patents on new products and processes, thereby
turning new ideas into
a. private goods and increasing the incentive to engage in research.
b. private goods but decreasing the incentive to engage in research.
c. public goods and increasing the incentive to engage in research.
d. public goods but decreasing the incentive to engage in research.
94. On the basis of theory and empirical evidence, economists have reached
several conclusions about
economic growth. Which of the following isnot one of these conclusions?
a. A relatively simple way to increase growth rates permanently is to increase a
country's
saving rate.
b. Growth is generally inhibited rather than promoted by policies like protective
tariffs.
c. Well-established property rights that are enforced by fair and efficient courts
are
important to economic growth.
d. Countries with few domestic natural resources still have opportunities for
economic
growth.
95. All else equal, which of the following would tend to cause real GDP per person
to rise?
a. a change from outward-oriented policies to inward-oriented policies
b. an increase in investment in human capital
c. a weakening of property rights
d. All of the above are correct.
100. The Economic Development Minister of a country has a list of things she
thinks may explain her
country's low growth of real GDP per person relative to other countries. She asks
you to pick the
one you think most likely explains her country's low growth. Which of the
following contributes to
low growth?
a. poorly enforced property rights
b. outward-oriented trade policies
c. policies that permit foreign investment
d. All of the above are correct.
105. All else equal, if there are diminishing returns, then which of the following is
true if a country
increases its capital by one unit?
a. Output will rise by more than it did when the previous unit was added.
b. Output will rise but by less than it did when the previous unit was added.
c. Output will fall by more than it did when the previous unit was added.
d. Output will fall but by less then it did when the previous unit was added.
111. Electronics firms may be able to get patents on their ideas. Doing so makes
their ideas
a. private goods rather than public goods. This gives people more incentive to
engage in
research.
b. private goods rather than public goods. This gives people less incentive to
engage in
research.
c. public goods rather than private goods. This gives people more incentive to
engage in
research.
d. public goods rather than private goods. This gives people more incentive to
engage in
private research.
115. By saving more, a country
a. has more resources for capital goods. The increase in capital raises
productivity.
b. has more resources for capital goods. The increase in capital reduces
productivity.
c. has fewer resources for capital goods. The decrease in capital raises
productivity.
d. has fewer resources for capital goods. The decrease in capital reduces
productivity.